May 17, 2019

Volume 13, Issue 20

Feature Article

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Exchange Info

New Fresh Bacon Index Served Up By CME Group

Joe Nikruto

Bacon IndexWith the other ‘white meat’ in the news as it has been recently the launch of the new CME Fresh Bacon Index couldn’t come at a better time. The ongoing crisis that is African Swine Fever is wreaking havoc on Asian, specifically Chinese, pork production. China, both the world’s largest producer and consumer of pork is being hit especially hard by ASF.  Difficulty with reporting and containment in China’s rural areas is making management of this crisis a process that could impact agricultural markets for years to come.

Back here in the US pork consumption is flying high, especially when it comes to bacon. Has there been a time in history where bacon has been more popular? With the ascendance of high, or at least higher, fat diets such as Keto, Paleo or Carnivore, and novel marketing bacon has been and continues to be a red-hot popular, even fashionable food item.  As individuals our need for information regarding bacon can be limited to where the best sale is or what craft beer to pair it with at our next social function.   For other market participants, like this list taken from the CME Group press release for the new Fresh Bacon Index, such as “producers, packers, processors, wholesalers, foodservice, retailers and others across the bacon supply chain” the need for a transparent price reference is more pronounced.

In 2011 CME Group delisted the Frozen Pork Belly futures contract. Over time, the type of pork belly demanded by consumers and traded on the cash market shifted, and the frozen contract no longer represented an effective hedging instrument. The new Fresh Bacon Indexwill provide market participants “with a transparent weekly price to track supply and demand dynamics of bacon transacted on the cash market” according to the CME Group’s press release.  CME Group does not currently have plans to launch a bacon or pork bellies futures contract. Right now, the exchange is focused on making the CME Fresh Bacon Index the bacon price reference. CME Group is making five years of index data available on the website with updates to arrive every Monday going forward.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-453-4494 or jnikruto@rjofutures.com.

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Metals - Gold

June Gold to Remain Range Bound

Joshua Graves

June gold futures have seen more volatility as the US equity market continues to grapple with trade uncertainties, geopolitical tension, and investors who see a weak global economy because of the trade war escalation. If you look at gold from a technical perspective, the trend lower that started from the peak in gold at 1356 has been broken as of May 13, when gold moved above the trend line, however, appears to now be back beneath that line and continuing its move lower. A double bottom could be argued in late April when gold failed to make a sustained move beneath 1270. I believe that gold is likely to once again move toward that level if we do end up holding beneath the lower trend line. Look for smaller rallies to sell into and buying into small dips.

If you look at some catalysts that could move gold higher, the first and I would think most obvious would be a big stock market selloff. This would be enough to at the very minimum keep gold at its current level of 1280, and likely push gold above 1300 for the foreseeable future. Investors flock to safe haven assets such as gold in times of uncertainty. The most effective way of doing this is in gold futures, as gold etf’s do not offer the same liquidity, trading hours, or leverage that gold futures offer. The one headwind that will keep gold lower barring a major market event (think Iran war) is the incredibly strong US dollar index. If the US equities can survive this trade war, look for a resurgence of the dollar index, and this lower gold prices. If you would like more information on how to play gold, please contact me directly.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-438-4805 or jgraves@rjofutures.com.

Gold Jun '19 Daily Chart

Gold Jun '19 Daily Chart

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Metals - Silver

Silver Futures Struggle to Base a Bottom

Frank J. Cholly

Even after the recent bounce in gold futures, the silver market is still looking weak. For the July futures contract, I think $14.60 support needs to hold or there’s a good chance for another leg down. I don’t see much in terms of support until $14.35 to $14.25 range. This metal, currently, is not being viewed as a “safe-haven” trade. No doubt there is plenty of uncertainty to go around between the US and China trade negotiations and the strength or weakness in the US and Global economies. However, silver can’t rely on Geo Politics for support. If gold manages to climb back towards $1,350 then I would expect that silver could claw its way back towards $16.00. I think that that these are still good long-term value levels in silver, but until something more fundamental changes the landscape for silver it looks to be stuck under $15.00 for the foreseeable future.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-4124 or fcholly@rjofutures.com.

Silver Jul '19 Weekly Chart

Silver Jul '19 Weekly Chart

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Energies - Crude Oil

Crude Oil and Related Spreads at Critical Levels

Michael O'Donnell

As of Thursday morning, the June crude oil market is trading slightly over $63 per barrel as the market has weighed bearish developments on trade between China and the United States and bullish geopolitical tension in the Middle East.

Wednesday’s EIA report showed a build in crude inventories of 5.4 million barrels and draws in gasoline and distillates.  The EIA report for this week should bode well for refiners who are already operating at 90.5%, with strong gasoline prices and summer driving season imminent.  Also, of interest for the crude market are WTI-RBOB and WTI-Brent trading at elevated levels, typically bullish for energies.

Moving forward, a number of outside factors will determine the direction of the market as the geopolitical tension has provided resilience to this market in the face of bearish factors including no trade deal.

Technically, as seen in the chart below, shorter 50 and 100 DMA are sloping upward, and the 200 DMA could turn that direction as well should the upper trendline be breached. Equally possible, should the risk off demand environment return with recent consolidation and the lower trendline being breached there could be considerable downside.

This month’s test of $60 has held for the time being and would be a key level to monitor in addition to the 200 DMA at $60.62. If, these levels continue to hold, especially with the spreads previously mentioned at elevated levels, there could be more upside, especially with a catalyst such as further Middle East escalation or positive developments on U.S. Chinese trade.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or modonnell@rjofutures.com.

Crude Oil Jun '19 Daily Chart

Crude Oil Jun '19 Daily Chart

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Energies - Natural Gas

June Natural Gas Trends to the Upside in Seasonal Crossroads

Jeff Ratajczak

Natural gas for June is continuing in a slight uptrend.  Resistance is seen at $2.670 then above at $2.700.  Support is near $2.450 then again around $2.500.  A close under the $2.574 level is needed to stop the bull trend.  A close under low support level should turn the trend to bearish.   Momentum studies are above 50% and still climbing.   This should accelerate a move in the direction of the trend.  A close above the May 14 high, $2.67 opens the door for a run to $2.700 and realistically $2.750.  Short-term moving averages are turning to the upside. 

June natural gas is at a crossroads in seasons.  Cooling season might put an early jump in prices as warmer weather rolls in to the Southeast.   Bearish storage numbers in Thursday’s EIA report have been pushed aside as the trend to the upside has resumed. The market is still below the 5-year average and might be ready to jump to the upper ends of the trading range.  $2.760 and above could make way for a blow off top.   

If you have any questions or would like to discuss the markets further, please feel free to contact me at 888-874-8110 or jratajczak@rjofutures.com.

Natural Gas Jun '19 Daily Chart

Natural Gas Jun '19 Daily Chart

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Softs - Cocoa

Cocoa Futures Tremble on Trade Talks

Eric Scoles

July ’19 cocoa futures break sharply lower with volatile US/China trade talks and the potential for trade conflicts between the US and EU. US/China talks have been a significant factor in many markets lately and have been wreaking havoc on charts and taking trader’s psychology on a roller coaster ride. If the US/EU enter conflict on trade this could decimate any cocoa confidence as Euro zone grinders make up more than 1/3 of all global cocoa processing.  Possible issues with supply and potential marketing cooperation from the world’s two largest producing regions (Ivory coast and Ghana) have been supporting factors but depleting confidence and increasing demand concerns may prove too strong. At the time of writing that the price of cocoa has briefly pierced down past consolidation lows but is recovering. Volatility is expected but technical factors indicate we could be close to a breakout and it’s time to start paying close attention.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7290 or escoles@rjofutures.com.

Cocoa Jul '19 Daily Chart

Cocoa Jul '19 Daily Chart

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Softs - Coffee

July Coffee Hitting Resistance

Adam Tuiaana

July coffee prices have rallied over the past week mostly due to strength in the Brazilian currency, along with some harvest issues in key growing areas of Brazil. The Hightower Group reported today that “heavy rainfall in Brazil’s Arabica and Robusta regions over the next week should continue to slow harvest pace”. These reported harvest issues, weighed against a still very large supply of old crop coffee should help to keep July coffee prices in check. As I’ve written many times prior, we have yet to see any solid bullish supply news to reverse this falling market. We should consider the fact that there will be extremely good resistance at the 9300 level in July coffee prices, and we will likely see prices resume to the downtrend unless we receive some extremely strong bullish supply news. Trend followers will likely adhere to bearish positions initiated at the 9300 area, as this would be the top of a long-term downtrend channel.

A strong US dollar continues to hold support above the 9700 level and remains in an uptrend, adding selling pressure many of the world’s commodity prices.  

I remain bearish on July coffee prices and would expect formidable resistance at the 9300 level in the near-term. With such volatility on the horizon, I would advise using options to manage risk and gain exposure to the potential resumption of the current downtrend in July coffee prices.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 866-536-8601 or atuiaana@rjofutures.com.

Coffee Jul '19 Daily Chart

Coffee Jul '19 Daily Chart

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Agriculture - Grains

Grain Futures Update w/Stephen Davis - 05/17/2019

Stephen Davis

RJO Futures Senior Market Strategist Stephen Davis discusses the grain futures markets.  If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-367-7181 or sdavis@rjofutures.com.

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Currencies

Global Currencies: Bullish Turnover in the Yen

Ian Bannon

The US dollar has quickly rebounded from Monday’s low as trade tensions fall into the background. This is a bit surprising, as Wednesday’s retail sales and industrial production numbers missed expectations. Weak data in the recent term further diminishes the chances of a rate hike by the Fed going forward, which is bearish for the dollar into the second half of the year. Thursday’s extended range up can be credited to lower-than-expected jobless claims and an increase in housing starts and permits. I believe this is merely short-term strength and the USD is in a topping process. Currency investors are flocking to the safety of the Japanese yen, as it is now in a bull trend vs the dollar. Thursday morning, the yen is trading around initial support at 91.34, and a breach under this level could cause back and fill action toward 91.24. A break above 91.905 could cause an extended run toward 92.26. The euro continues its march south despite news that the US will delay tariffs on European autos. Scheduled data out of the EU has been mixed this week, with German GDP slowing and the Italian CPI reading reflecting lukewarm inflation. Meanwhile, France is observing decade-low levels of unemployment. The euro will likely be more sensitive to changes in risk sentiment than other currencies. Thursday morning, the June pound sank to its lowest levels since January. Brexit concerns have sparked selling interest as British political parties fight for control going into next year. Near-term resistance is seen at 1.280, while a close over 1.2985 will likely stop the bear in its tracks.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5354 or ibannon@rjofutures.com.

U.S. Dollar Jun '19 Daily Chart

US Dollar Jun '19 Daily Chart

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Interest Rates

US Treasury Prices Continue Upside Extension

Alexander Turro

US government treasury prices have continued their upside extension and regained momentum following a slight downtick in price on Tuesday, reaching their highest price since late March. This comes amidst a negative tilt in global growth risk with Chinese economic data confirming the recent bearish phase transition in the Shanghai Composite. Chinese economic data missed in the overnight with Retail Sales coming in at 7.2% (against +8.7% in March), which was the lowest since May 2003, and Industrial Production falling to 6.2% from +6.5% in March. This was coupled with a miss in US Retail Sales as well as sharp decline in Industrial Production -0.5% MoM, which showed the weakest growth in 2 years. Recent weakness in the US equity market amid ongoing trade tensions has sparked safe haven buying with the benchmark 10-yr yield falling as low 2.371%, with the latest expectation of a 45 bps rate cut this year. The yield on the 10-yr note remains bearish trend with the current range seen between 2.36 – 2.50%. Funds hold a large net spec short position which could fuel some short covering in the near-term with resistance on June bonds coming at 150-04.

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-826-1120 or aturro@rjofutures.com.

30-Year Treasury Bond Daily Chart

30-Yr T-Bond Daily Chart

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Equities

Stocks Significantly off Overnight Lows

Bill Dixon

The four major indices are all higher and well off their overnight lows in the early going this morning.  Yesterday’s weak close carried through into the overnight session.  News regarding the China deal (or lack thereof)  has been dominating the market.  Any rosy tweets, comments, etc. have been the all the bulls need to send this market higher.  Any negative news, and the bears are taking the reigns.  After reports out of China that they were less than thrilled with the United States’ approach to the deal, we continued lower overnight.  

Countering a good deal of the bearish China developments is the Fed’s dovish shift. Expect to hear a great deal of speculation going into the two day meeting beginning June 18 about potential rate cuts.  They’ve already changed their tune considerably on their stance for further rate hikes moving forward, so it is not inconceivable to think they may transition further towards actual rate cuts.  It will be interesting to see how these two major factors continue to develop over time. 

If you have any questions or would like to discuss the markets further, please feel free to contact me at 800-669-5342 or bdixon@rjofutures.com.

E-mini S&P 500 Jun '19 Daily Chart

E-mini S&P 500 Jun '19 Daily Chart

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